Monthly Fixed Income Market Update: January 2026

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MARKET NEWS

 

  • In January, investors navigated a wave of geopolitical shocks: the US strike on Venezuela and capture of then-President Nicolás Maduro, escalating tensions between the US and EU over Greenland, and Japan’s fiscal concerns, which drove a global rates sell‑off
  • The Federal Reserve (Fed) kept the fed funds target range unchanged at 3.50% - 3.75%, citing a stabilizing labor market, resilient consumer spending, and easing, but elevated, inflation
    • President Trump nominated Kevin Warsh to be the next chair of the Fed, pending Senate confirmation
    • Warsh would replace Stephen Miran, giving Jerome Powell the ability to remain on the FOMC when his term as chair ends in May
  • The Treasury curve flattened as investors lowered the probability of another rate cut during Powell’s term; the spread between the 2- and 30-year rates tightened 2bps to 135bps
  • Investment-grade (IG) issuance totaled just under $209 billion – the busiest January on record despite below dealer forecasts
  • Investment-grade (IG) corporate spreads reached the lowest level since 1998 mid-month, before closing at 73bps – 5bps tighter month-over-month
    • Energy and Transportation were two of the best performing sectors, while Banking lagged other corporate sub-sectors
  • High yield (HY) corporate spreads tightened to 250bps intra-month before widening on expectations that the Fed would keep rates steady for longer; spreads closed the month at 265bps, 1bp tighter month-over-month
    • Higher-quality issuers outperformed lower-quality issuers, with BBs outperforming CCCs by 27bps; BBs continued their strong performance by posting a 10th straight month of gains
    • HY borrowers capitalized on attractive funding levels with over $30 billion of supply – the second busiest January since the pandemic
  • Policy headlines from President Trump – including proposals to ban institutional purchases of single‑family homes, increased GSE mortgage buying, and a possible 10% cap credit‑card rates – influenced sentiment within the securitized sector
    • Agency mortgage-backed securities (MBS) outperformed other securitized sectors; MBS spreads initially tightened to 14bps intra-month before closing at 16bps, 6bps tighter month-over-month
  • Municipal bonds outperformed Treasuries as muni/Treasury ratios declined across the curve

 

MARKET STATISTICS

 

 

 

As of 1/31/26. Sources: Bloomberg

Excess returns are the curve-adjusted excess return of a given index relative to a term structure-matched position in Treasuries. This is not a recommendation to purchase or sell the securities mentioned above.

The views contained in this report are those of Income Research + Management (“IR+M”) and are based on information obtained by IR+M from sources that are believed to be reliable but IR+M makes no guarantee as to the accuracy or completeness of the underlying third-party data used to form IR+M’s views and opinions. This report is for informational purposes only and is not intended to provide specific advice, recommendations, or projected returns for any particular IR+M product. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Income Research + Management. “Bloomberg®” and Bloomberg Indices are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the index (collectively, “Bloomberg”) and have been licensed for use for certain purposes by IR+M. Bloomberg is not affiliated with IR+M, and Bloomberg does not approve, endorse, review, or recommend the products described herein. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to any IR+M product.

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As of 12/31/25 unless otherwise stated. Personnel as of 1/27/26.
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